Stock picking

The Pokemon Go revival of Nintendo – 12 July 2016

After the Mario plumbers failed to stem gamers from leaving the Nintendo platform, an unlikely hero in the form of Pokemon and its band of cutesy monsters is giving Nintendo a second wind, last experienced when it introduced Wii to the gaming community. And what a spectacular ride up the stock chart for Nintendo!

10 months ago, Nintendo had already announced a new mobile game called Pokémon Go, an augmented reality game. Basically, it’s a game that allows you to go out there to catch virtual monsters in the real world and pit your pet monster against other pet monsters. Along the way, you do tasks like search in your neighbourhood for upgrades to improve the fighting capabilities of your pet monster. All these, guided by your phone.

Knowing that its installed base of gaming console machines was limited and made it difficult to scale up its reach to new customers, Nintendo decided it was now or never to put its successful Pokémon franchise on everyone’s handphone.

If you still don’t understand any of this, just know that it’s a very, very addictive game as the upgrades and monsters are endless. Players will be able to pay real money for virtual upgrades and all kinds of enhancement to their monsters. Retailers will want to pay Nintendo money to attract gamers to their outlets to “hunt” for upgrades or fight other monsters for points.

Do you now get the idea how money will start to flow to Nintendo? The possibilities of monetising Pokemon Go are pretty mindblowing. The market recognises this and rewarded Nintendo with an astonishing 60% stock price jump in just 5 days when it was officially launched on 6th July.

Things don’t happen for no reason. And that’s how you make your millions. Because you know what’s going on and take action when the opportunity arises. Making money takes effort, but it’s not difficult.

And that’s what Empower Advisory’s investment bootcamps are for. To speed you up to profit with confidence.

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Empower Advisory Team

Investing lessons from the Greek Crisis – 6 July 2015

The Greek government-debt crisis of Jun 2015 has its roots more than a decade ago, in an uncompetitive economy, huge borrowings and an over-generous welfare system that was stubborn to restructuring. It got worse when the Greek government admitted to under-reporting its debt level and deficits. In 2012, Greece’s government had the largest sovereign debt default in history and despite an attempt by sovereign lenders to instil discipline into its heavy spending, missed an IMF €1.6 billion loan repayment on June 30, 2015. Today, it risks being kicked out of the European Union, having amassed an estimated €330 billion in debt.

It is timely we draw lessons as share investors from the Greek crisis, using parallel ‘metaphors” to bring our point across.

1) Choosing a bad company – Greece always had a weak economy. Adding Greece into the collective long “portfolio” of EU countries, doesn’t make sense.

2) Pouring good money after bad – This is not the first time Greece has defaulted on its loan. Yet, Greece continues to get bailed out.

3) Realise that you can’t change a company. You take them as they are – Greece continued to run like Greece, on a welfare system that cannot be sustained. It is strange that its lenders think they can solve Greece’s problems. No, Greece has to solve its own problems.

4) Realise you are really investing in the quality of the company’s management – Greece is run by bad managers. Enough said.

5) If you can’t cut your losses early, you’re screwed – Now, all the lenders to Greece feel pretty screwed. Maybe they can demand some territories from Greece to offset the loan, but that will be just a political disaster.

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Mr Buffett is the 4th largest shareholder in Tesco. Tesco is a multinational grocery and general merchandise retailer headquartered in UK and is the second-largest retailer in the world (measured by revenues) after Walmart.

Sounds like a no-brainer investment, right. A business in the business of providing necessities. Perhaps even recession proof, you might think.

Buffett bought into Tesco shares in 2006/2007, to amass a 5.2 per cent stake. 5 years later, when Tesco issued a profit warning in January 2012, (Its profits fell for the first time in two decades), Warren picked up some more.

Worst was to come. Tesco’s share price eventually fell to a new 11-year low on 3 October 2014, closing at 172.15 pence, down from 487 pence at its peak in 2007. By then, Buffett was looking at about US$ 750m of unrealized losses.

The competitive landscape Tesco competes in had changed dramatically since Buffett bought into Tesco. It had over-expanded, losing touch with its customers who in droves had moved over to discount rivals like Aldi and Lidl.

Finally, after holding Tesco shares for 7 years, Buffett admitted to CNBC, “I made a mistake on Tesco. That was a huge mistake by me.”

Things are going to get worse as Tesco is under UK’s financial regulator’s investigation after management admitted that it had overstated its 1H2014 profits by £250m.

Buffett’s mistake is all too common among investors who hold on to stocks of companies that have since lost their glory days and hope against hope that their battered share price will bounce up. Buffett is going to trim his losses. He too knows that this time, the leak is too severe to plug.

Buying and hold, hold, hold is not a “Fail-Proof” investment approach. You still need to adjust your position from time to time. Many promoters tell you stock picking is easy. Buy the stock of a “good” company and just hold. Don’t need to care too much. Tesco was a “good stock” when Buffet took a huge position in it. Look what happened. You have to know the correct approach to investment. Whoever tells you that investment is just buy and hold is not competent, lying or just don’t care enough about you to tell you the truth.

Just buy blue chip stocks and hold, hold, hold? – 10 Feb 2014

Some people use Warren Buffet’s name or his famous surname (Did they even get his permission??) to sell you the advice to follow what he is known to do – buy the stocks of blue chip companies and hold, hold, hold.

Hang on for a moment. Just for the records, Warren Buffet is not an ordinary retail investor. He takes so much stake in a company each time he takes a position, that he or his representative gets at least a board seat to influence the company’s strategic direction where necessary. With his deep industry connections, he helps the company to reverse its fortune or further expand its business and profitability.

You, the retail investor will not be able to do what Warren Buffet does. And if you only hear one side of the story and just blindly, hold, hold, hold on to blue chips stocks like Singapore Airlines (SIA), you’ll be a very angry and disappointed investor. Since October 2010 (see above chart), SIA has never recovered from its share price of $16 and is trading at about $9.50 today.

For a company that used to make $1b in annual profits pretty effortlessly, it is now struggling to make more than $500m, unable to grow its topline meaningfully and having to contend with overcapacity, higher operating cost and intense competition as rival full fledged and budget airlines catch up. It is a blue-black company today. Its profit margins these days are less than 5%, a far cry from its glory days.

Hanging like a dead weight around its neck is SIA’s stake in Tiger Airway which is doing badly too. The lesson here is knowing how and when to cut losses to reinvest in more profitable stocks. Having good money locked in for 3 years at a loss is a grand pity when one can use the salvaged funds to ride on other good company stocks. What’s worse is that you don’t even get a board seat in SIA to air your grievances despite being a loyal SIA stockholder!

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Fundamental Analysis vs Technical Analysis – 1 Jun 2013

I’ve always been asked which side I lean towards; fundamental analysis or technical analysis?

Fundamental analysis of a stock means looking at the business’ financial health, its growth numbers, its management, its business model and its competitive standing. You need to be alert for any such information pertaining to the company you are already invested in or going to take a position (long or short). When applied to futures and forex, it means you have a good understanding of the competitiveness of economies, industrial production numbers and employment data among other macro-level economic data.

Technical analysis is about forecasting the direction of stock prices through the study of market data charts, primarily price and volume. Often, a hardcore chartist would dismiss fundamental analysis as a waste of time, arguing that all there is to know about the company is already priced in and reflected in the company share price and movement. One just need to interpret the charts to make money.

I beg to differ. Both are equally important. Fundamental analysis helps me to sleep at night even when my stock price swings, for I’m assured that I have invested in a quality company. Technical analysis helps me to time my entry into the stock so that I do not buy in at too high a price or sell at too low a price. Combining both is the best approach. To find out how, come to our course!

Our best, always.

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